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Dear fellow IMS shareholders
Looking back on 2005, once again we can be pleased with the steps taken to develop our global business at I.M. Skaugen (IMS) during another incredibly challenging, yet successful, year. Our profitability for 2005 will be our best ever and the share price is at a historically high level.
During 2005 we saw an encouraging rise in our share price from NOK154 to NOK235 - a yield of over 60 per cent, including dividends paid during the year. Despite this rise, I still believe there are further opportunities for the share price in 2006 based on our future earnings capability when compared to other company valuations in our sector. We will continue to work hard to realise a strong return on investment for our shareholders.
Newbuilds programme
We have many new strategic initiatives on our plate and each one of them is a challenge, requiring the best we can muster. As a point of example, the newbuilding order book for the group, if all materialises, stands at 21 ships with a gross value of about USD 570 mill. (on a 100% basis). All 21 ships are, however, ordered at price levels that we consider very attractive compared to prevailing newbuild prices and thus fits our ‘lowest cost provider’ strategy. We will need to earn a lot of money to pay for these new ships and we will need the best of skills to manage that. However, I believe that these skills are available within our IMS team so I am truly pleased to be part of an organisation with so many qualified and enthusiastic members.
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On a general note, there is no doubting that 2005 has been a very good year for the marine transportation industry - with generally high freight rates in both the dry and wet bulk sectors as well as gas and chemicals markets, supported by the strength of the world economy and thus world trade. This, in turn, has meant that I.M. Skaugen has performed exceptionally.
A people business
However, I feel that our success this year is based as much on the foundations we have laid for our business in the last few years as the potency of the market. During this time we have worked tremendously hard to build our presence in a number of key strategic focus areas - particularly in China and the Middle East. We recognised early the need to think as a global operator, but one that can act with a local approach. It is by developing a multi-cultural organisation, with the best people available to drive our business wherever it is needed, that we have been able to take advantage of strong market conditions during the year.
But to stay at the top there is always much to be done and I feel that the ‘people side’ of our industry is where we face the greatest challenge. We understand our business well and we are aware of what our customers want from us, so they can be successful themselves. But, there is a limited talent pool in the industry and we have to work hard if we are to retain the high standards we have attained recently.
Our maritime training centres in St. Petersburg and Wuhan will help with this task, and Wuhan, in particular, has again seen a significant rise in the number of students through the ‘post-graduate university programmes in the last 12 months. This can only be good for us as we seek to employ the best people we can.
China activities
It can be said that as an organisation we have been more cautious than we could have been in recent years, but with hindsight everything can be seen much clearer. Nevertheless, I feel that we have done well to take opportunities when they have presented themselves, but also to recognise how our industry is developing and try to stay one step ahead. No more so is this true than in our efforts to develop a strong presence in China. Having entered this market over 10 years ago, we are now well on our way to reaping the rewards. As a revenue generator, we still have some way to go in China, but this is not the sole criterion by which we must consider our success in the country. During the year we announced three more projects to build gas carriers at our ‘IMS dedicated’ yard near Shanghai - and we have also created a ‘green field’ factory to build pleasure boats. We have in place a team that is capable of assuming the key roles of a shipbuilder by taking on much of the responsibility for not only the design and construction, but also for sourcing of all major components - such as steel, engines, pumps and, more importantly for gas carriers, the key cargo handling systems and their critical components.
Unless we had taken the time during the past decade to gain an understanding of how business is done in China, we could not have hoped to enter into such an agreement and reap the multi-million dollar benefits that we expect on these projects.
Building success
In addition to our focus of gaining and retaining the right people to develop our organisation, there are a number of other issues we must face if we are to continue to build business and financial success. These are:
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Manage business risks based on competence in our core business and to further enhance our project management skills
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Continue to develop our world-class IT network and by this be able to successfully decentralise operations whilst retaining control and communication
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Effectively train our staff at all levels and across the organisation and make the best use of our partnerships and alliances
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A good deal has been made during 2005 of the management philosophy of Thomas Friedman and his book ‘The World is Flat’. Much of what he advocates is at the heart of our own business practices and is helping us to successfully manage
those issues I have highlighted. Key to all of them is
how we utilise a multicultural and global approach to our IT solutions in order to make us even more efficient. As we decentralise our operations - putting our employees in the most effective locations to serve our customers - we must ensure that access to information and best use of communications services is top of our list of needs.
On this note I will pass my very best wishes to you all - from fellow IMS team members to our alliance partners and shareholders - for continued close cooperation during 2006.
Morits Skaugen, CEO
7th February, 2006
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